Trading Rule #5 – There Is No Magic Trading Rule

I sat down to write “The Rules” because I’d been getting an increasing number of email inquiries on how to get into trading.   But perhaps the most important rule of all is that there is no secret recipe:

Rule # 5:   There is no magic silver bullet strategy that you can mimic and print money.  

That’s why, as you’ll notice, my “Rules” may seem more like qualitative Zen ramblings than a “How To Make Money Trading” series.   That’s by design, and it’s also because I don’t have a list of “How To Make Money Trading” rules that I could simply diagram for you.   My rules are kinda like the Joey Knish quote from Rounders:

“I’m giving you the playbook I put together off my own beats.”

I guess, in a way, they could be considered starter rules for how to avoid losing money, which in the end isn’t exactly the same as making money, and yet not so different.

Throughout my education (high school and college, I mean), I always recognized that my personal secret to success in the classroom was to avoid rote memorization of the methods to solve the problems – I would never just try to remember a recipe of what to do.  Rather, I’d try to understand what the recipe was doing so that I’d be able to apply it easily in my mind, and wouldn’t have to worry about recalling a bunch of steps that were, on their own, meaningless.   Trading is the same way – if your strategy is buying failed breakdowns – something JC Parets at All Star Charts has written about a few times lately – understand WHY it is that you think this strategy will work.   If your strategy is mean reversion, understand the market theory behind it.   Same with momentum.  Or Fibonacci levels.

I think that JC Parets, Robert “Stocksage” Sinn, and Peter Brandt are great technicians to read who clearly explain the thought processes behind their trades, and are almost always careful to note that they will be wrong a huge percentage of the time – so they avoid getting married to trades.  These are the guys who come close to giving you “recipes” for how to trade – but they would be the first to tell you, I think, that they are not recipes for guaranteed success.

For more reading like my “zen” Trading Rules, there is none better than Brian Lund.  bclund combines essential trading concepts into entertaining real life narratives, and has quality “zen” lessons  more-than-once-a-week.  Recent examples include “Love and The Markets” (which I subtitled: “The Market Doesn’t Give A Crap About You”) and “Beware the Obvious Trade.”

When he’s not off on his global media whirlwind tour, Josh “King Of All Media” Brown still cranks out posts of this nature as well – like his recent “There Are Forces at Work Here That Many Do Not Respect.”

In closing, as you attempt to further your trading education, I would suggest a balance of qualitative “rules” like the kind that bclund, Josh Brown and I write mostly about, and more quantitative trading strategies like those of Brandt, Parets and Sinn.   Whatever you do, if you encounter someone pitching you easy money or guaranteed profits, run the other way.







Kid Dynamite

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